Cyprus has made progress with overhauling its banking sector and pushing through structural reforms to the economy but significant risks remain for the island, a report by the country's international lenders said on Wednesday.

Cyprus became the fifth euro zone country to receive international assistance in March, when it secured a 10 billion euro package of loans in return for reforms and an unprecedented one-off levy on large bank deposits.

Experts from the European Commission, the European Central Bank and the International Monetary Fund - together known as the troika - said in their first review of the rescue program that Nicosia had taken decisive steps to stabilize its financial sector and was gradually relaxing capital controls.

But the economy is expected to contract by a total of 13 percent in 2013 and 2014, before returning to marginal growth in 2015. Unemployment continues to rise and there is hard work to do to ensure the economic reforms are fully enforced.

"While the program has been implemented with determination so far, downside risks remain substantial," the report said. "Continued full and timely policy implementation is essential for the success of the program."

The report identified a number of risks to the full implementation of the plan, including a difficult and uncertain economic outlook, risks of lower-than-expected privatization proceeds and continued low confidence in banks.

"Consumer confidence remains at historically low levels, while labor market conditions are gradually worsening and weighing on private consumption," the report said.

(Reporting by Martin Santa; editing by Luke Baker)